2. Program Summary
Today’s topics
What is a nonprofit?
Should your organization be a §501(c)(3)?
How do you become a §501(c)(3)?
How do you keep nonprofit status?
Frequently asked questions about nonprofits
Tips to get you started
3. What is a NonProfit?
(In 15 words or less)
A NonProfit organization
is a corporation
organized and operated
exclusively for the public good
4. Types of NonProfits
Defined by the IRS, Nonprofits fall two categories:
Tax Exempt: The organization does not
have to pay income tax on money earned or
received through donations, activities, and
grants.
Tax Deductible: Contributions made to the
organization are deductible on the donor’s
income tax return.
Note:
You can be Tax Exempt and NOT Tax Deductible, but you
cannot be Tax Deductible without being Tax Exempt.
5. Both are “NonProfits,” but...
There are 28 (Other)
501(c)
categories of
Vs.
§501(c)
Does not pay income tax nonprofits Income Tax
Does not pay
501(c)(3)
Contributions Deducible to
Donor
Contributions NOT
Deductible
Qualifies for Grants
Usually NOT qualified for
grants
only 1 is
501(c)(3)
6. Under 501(c)(3
Only §501(c)(3) organization are BOTH
Tax Exempt AND Tax Deductible:
o
o
o
o
o
o
o
o
Charitable
Religious
Schools/Education
Science
Literature
Testing for Public Safety
Fostering Amateur Sports Competition
Prevention of Cruelty to Animals and Children
7. Under 501(c)(3)
What if my organization is not listed?
Generally, if your organization does not fit the tax exempt
definition, it can be a nonprofit,
but not a tax exempt nonprofit:
Example: Arts organizations are NOT specifically listed as
eligible for tax exempt status.
However, all is not lost!
An arts group (or other nonprofit group that does not fit the
“definition”) can become nonprofit by electing one of the
OTHER nonprofit types: Education, Charitable, etc.
8. Who should be a 501(c)(3)?
You should consider §501(c)(3) status if you...
Have a charitable purpose (see earlier definition)
Handle money (more than simply “dues”)
Receive more then $5,000 per year
Apply for grant funds (local, state, national)
Are part of a state/national organization (more on this, later)
Give money away (scholarships, etc.)
Are (or wish to be) publically supported (that is, receive
money from general public)
Handout: Nonprofit Basics FAQs
9. Who should be a 501(c)(other)?
Tax Exempt, but NOT Tax Deductible
If you are organized for a business purpose
If your primary purpose is not “charitable”
If you take in money, and are organized for one of
the purposes above.
If you have a political purpose
Handout - IRS Organizational Reference Chart
10. Why is NonProfit Status
a “good thing” for my organization?
You can apply for/receive public grant funds
Donations are tax-deductible (for §501(c)(3) only)
Your income may be exempt from tax
Purchases may be exempt from sales tax
Representation of Goals in the Community
Financial Planning and Fund Raising
Affiliation with other non profits (including state or
national organizations)
Credibility, Continuity and Longevity
11. Why NOT be a IRS NonProfit?
Official Tax Exempt status is not for everyone.
If you are a small organization, the process may be more than you
want to attempt ($$$, time, paperwork)
If you can use another organization as a money conduit, (to apply
for grants, award scholarships, etc.)
If you are part of a larger organization, you may be under its tax
exempt umbrella
If you have a political agenda as the primary purpose of your
organization (political action cannot be 501(c)(3))
If you have < $5,000 per year annual income, or are a church, you
do not have to have Tax Exempt Status to be a NonProfit (but you
should consider it, anyway)
12. Rules of the Road for NonProfits
What NonProfits can and cannot do –
NonProfits CAN:
Solicit donations from individuals and corporations (which may or
may not be tax-deductible)
Pursue recognition of their cause and accomplishment of their
purpose in the community
NonProfits CANNOT:
Lobby for political change or legislation
Engage in a “business” for profit
Give money to members (“inure to benefit of...”)
14. How do you become a NonProfit?
1. Philosophical Step
▪ Determine your purpose – what do
you wish to accomplish as a
NonProfit?
Handout: 7 Tips for Starting a Nonprofit
15. How do you become a NonProfit?
2. The Mechanics
The Details of Incorporation and
Application for Tax Exempt Status
This is how you “get -er- done”
17. Corporate Formalities
Minimum Required Documents for Tax Exempt Status:
Articles of Incorporation - Indiana
Tax ID number - from IRS
Statement of purpose
Bylaws/Governing Document
Conflict of Interest Policy
Officers/Board of Directors
Budget (3 year prior or 2 years future)
IRS Form 1023 - Tax Exempt Application
18. Guided Questions
Choosing structure for your corporation
Will you have members?
How will you fund your mission?
Grants, Donations, Activities, Service Fees
Who will lead the organization?
Board of Directors (Required)
Executive Director
Handout: IRS Required Language
19. Corporate Formalities
It’s all in the appearances – Typical Corporate Structure
Board of Directors
Minimum = 3 / Preferred = 5
Officers –
President
Vice President
Secretary
Treasurer
Functional Committees
Handout: Nonprofit Sample Bylaws
20. Yes, but,
What does it COST to become a
NonProfit?
Incorporation Fees: $30 to IN Sec. of State
IRS Tax Exempt Application User Fee:
$400 for average annual income < $10,000
$850 for average annual income > $10,000
Attorneys’ fees: Variable, depending upon time involved
and complexity of your situation. Expect to pay $1,000 $3,000.
Handout: IRS 1023 Application for Tax Exempt Status
21. Okay, I’ve applied for Tax Exempt
Status – Now what?
Wait for 3-9 months to hear from IRS
May need to provide more information
Receive “Determination Letter”
(aka “magic letter”)
Handout: IRS Top 10 reasons for delays in Exempt Applications
22. Congratulations –
You’re Tax Exempt!
Good news from the IRS
Act like a Corporation
Regular Meetings, minutes, Board of
Directors
Financial Reports, Government Reports
Regular qualified or professional review of
financial information
23. A Word About Meetings
Minimum Requirements for Good Meetings
Agenda
Financial Report
Current, accurate, understandable
Minutes
Attendance, Votes taken (motion and
second), note “nays” and abstentions, Document
resolutions, Signed by officers, approved at
meetings.
24. Congratulations –
You’re Tax Exempt!
Good news from the IRS
To retain Tax Exempt Status, you must
continue with government requirements...
Annual Tax Returns
Indiana NP-20 every year
IRS 990EZ or 990 every year If annual income >
$50,000
IRS 990N every year if annual income < $50,000
Handout: IN NP20A – Sales Tax Exempt Application
25. Now you have NonProfit Status –
How do you keep it?
Pitfalls for NonProfits – word to the wise
Sales/Use Tax – You are exempt BUT you have to file
the proper forms with State (NP-20A)
Property Tax – You are (mostly) exempt BUT you
have to file the proper forms with County
Gaming – Yes, you can play BINGO – BUT Indiana
has complicated gaming laws!
Filing Requirements – keep all state and federal
forms current!
26. Financial 990
IRS Tax Return
To Verify Nonprofit Activities
Purpose - to give the IRS more information to verify the “true”
nonprofit activities of nonprofits
More detail required for –
Officers, Directors, Highest compensated staff
Governance structure, policies, management practices
Public support, fund raising, gaming activities
More emphasis on determination of
Public charity - public support status
28. Protecting Nonprofit Status
Ethics and Conduct – What NOT to do
Improper donor acknowledgements
Donations of time are not tax-deductible
Donor “influence-buying”
Improper arrangements with donors
Failing to include both spouses in joint gift
paperwork
Staff/ED/Board/Volunteer accepting gifts
from donors
Personal Benefit from Nonprofit Work
29. A Word About Ethics
Nonprofit Corporations have the Public Trust
Ethical conduct of Board and Staff is essential!
No conflict of interest -- No self-dealing -- Volunteer Board
(but you can have paid staff that report to the Board)
Three areas Nonprofits Fail Ethics Issues
Failure to watch the money
Failure to watch the staff (and each other)
Failure to watch conflicts of interest
30. Charitable Donations
Watch the Rules regarding charitable donations!
What can be considered a donation?
What paperwork is required?
NOTE – donations of TIME and EXPERTISE are NOT
deductible!
Handout: Top 10 Rules for Charitable Donations
31. Is it worth it?
Weigh the costs and benefits
Talk to an attorney
Talk to your organization – what do
your members want?
32. A word about Charity Gaming
BINGO and Raffles in the State of Indiana
Rule #1 – Gaming is illegal in Indiana
Rule #2 – Licensed charity gaming is legal
Rule #3 – Failure to follow the rules can cost you!
(See Rule #1)
Fines up to $5,000 per violation
Must be a §501(c)(3) for three years to qualify
Handout: 7 Rules of Charity Gaming
33. Where to find information
Smart Stops on the Web
Handout – Top 10 Internet Links for Nonprofits
